Rising foreign exchange reserves are positive for the economy as they reflect an ample supply of dollars that help to strengthen the rupee.
New Delhi: India’s foreign exchange reserves surged by $2.56 billion to $644.15 billion during the week ended May 10, the latest data released by the RBI showed on Friday. This is the second consecutive week during which the country’s forex kitty has expanded after registering a $3.66 billion rise to $641.59 billion for the week ended on May 3.
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India’s foreign exchange reserves had touched a lifetime high of $648.562 billion in April after which they had declined for three weeks in a row by $10.6 billion as the RBI actively intervened in the market to buy dollars to stabilise the rupee. RBI Governor Shaktikanta Das had recently referred to the record foreign exchange reserves as a reflection of the strength of the Indian economy.
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“It is our prime focus to build a strong buffer in the form of a substantial quantum of forex reserves which will help us when the cycle turns,” he remarked while unveiling the first monetary policy review of the current financial year that began on April 1.
Rising foreign exchange reserves are positive for the economy as they reflect an ample supply of dollars that help to strengthen the rupee. An increase in the foreign exchange reserves gives the RBI more headroom to stabilise the rupee when it turns volatile.
This is because the RBI intervenes in the spot and forward currency markets by releasing more dollars to prevent the rupee from going into a free fall. Conversely, a declining forex kitty leaves the RBI less space to intervene in the market to prop up the rupee. India’s forex reserves, including the central bank’s forward holdings, can now cover more than 11 months of imports, which is a two-year high.
